Challenge Events – Tour Operators’ Margin Scheme (TOMS)

The Tour Operators’ Margin Scheme (commonly referred to as TOMS) applies not only to conventional tour operators but also to any business that buys in supplies such as hotel accommodation or passenger transport and provides those supplies in its own name to a “traveller” without material alteration. The scheme could therefore apply to a charity that runs a challenge event where, for example, accommodation is bought in and supplied to participants. A challenge event typically involves participants in some kind of activity for which they raise sponsorship, for example, a trek overseas.

These types of events do not usually qualify for the charity fundraising event exemption because they often include one or more of the following:

a package of both travel and accommodation

bought-in accommodation

more than two nights’ accommodation from a charity’s own resources

If in running the event the charity acts as a principal or undisclosed agent it will need to operate the Scheme. VAT will be due on the margin between what it has cost the charity (excluding overheads) to provide a place on the event and what the charity insists on receiving as payment before allowing the participant to take part. For events/packages that take place within the EU, the margin will be taxable at the standard rate. For events/packages which take place outside the EU the margin will be taxable at the zero rate. Additionally any VAT on direct costs that are bought in for resale such as hotel accommodation is blocked from recovery.

TOMS can also apply to charities making supplies of conferences and accommodation to business customers. It will depend on the particular circumstances such as whether the supplies come under the education exemption and whether the activities are carried out through the charity or its trading subsidiary.

Changes were made from 1 January 2010 withdrawing a concession which had allowed travel service providers who generally engage in normal sales but occasionally sell to other travel businesses for onward resale the option of accounting for tax at the standard rate of VAT. This widened the scope of TOMS.

TOMS is a complex area and, given the importance of getting it absolutely right, we would suggest that those affected take specific advice and/or refer to the HMRC published notices.